Smart Business Strategy for Start-Ups & Entrepreneur: Boston Consulting Group: Growth-Share Matrix

Table Of Contents :

• What is Business Strategy?
• BCG Growth-Share Matrix - Business Strategy
• Key Learnings - BCG Matrix

What is Business Strategy?

A business strategy is the combination of all the decisions taken and actions performed by the business to accomplish business goals and to secure a competitive position in the market.

It is the backbone of the business as it is the roadmap that leads to the desired goals. Any fault in this roadmap can result in the business getting lost in the crowd of overwhelming competitors.

What is Strategy?

Strategy?is an approach to apply?capability and resources to achieve an?objective/s.

Strategy is formulated and executed factoring in the environment, landscape, players or actors, and forces affecting the achievement of the said objective(s). Strategic position is the relative placement of each player in the landscape and can provide advantage or disadvantage in the achievement of the objective(s)

"Strategy is an approach to solve a problem."

Business Goals:

Business Goals are the broad primary outcomes towards which effort and actions are directed in a business. They are whats, not hows and a business might have multiple goals to achieve. For example, "we must be a leading player and increase our share in the home loan market". Normally there is no measurement?in the definition of a goal and only gives you the general direction of the company.

Business Objective:

A business objective, in short, is what a company wants to achieve throughout the year. Instead of focusing on what you're currently doing in your business, an objective is something you want to achieve going forward. Many times, business objectives are spelled out in a business plan and used as part of the strategic planning process?of a company going forward. After all, without objectives, how do you know what to do to get there? Business objectives function as a way for business owners to make plans, track their progress, and work toward a particular goal. The thing about objectives is that they're measurable, specific, and tactical. They aren't general statements like?We want to be the most recognizable bookstore in the region.?Instead, they are focused, such as the objective,?We want to open 10 new locations in the coming year

Business Plan:

A?business plan?is a written document that describes in detail how a?business - usually a new one — is going to achieve its goals.

A business plan lays out a written plan from a marketing, financial and operational viewpoint.

Business plans are important to allow a company to lay out its goals?and attract investment. They are also a way for companies to keep themselves on track going forward. Although they're especially useful for new companies, every company should have a business plan. Ideally, a company would revisit the plan periodically to see if goals have been met or have changed and evolved. Sometimes, a new business plan is prepared for an established business that is moving in a new direction.

Boston Consulting Group (BCG) - Growth-Share Matrix - Business Strategy:

The growth-share matrix was created in 1968 by BCG’s founder, Bruce Henderson. It was published in one of BCG’s short, provocative essays, called?Perspectives. At the height of its success, the growth-share matrix was used by about half of all Fortune 500 companies; today, it is still central in business school teachings on strategy.

Helps any business management (Big or small) to decide & prepare for future actions/strategies.

The model is simple & easy to understand.??

The growth-share matrix is, put simply, a portfolio management framework that helps companies decide how to prioritize their different businesses. It is a table, split into four quadrants, each with its own unique symbol that represents a certain degree of profitability: question marks, stars, pets (often represented by a dog), and cash cows. By assigning each business to one of these four categories, executives could then decide where to focus their resources and capital to generate the most value, as well as where to cut their losses.

What is BCG Matrix and How does it work?

The growth-share matrix was built on the logic that market leadership results in sustainable superior returns. Ultimately, the market leader obtains a self-reinforcing cost advantage that competitors find difficult to replicate. These high growth rates then signal which markets have the most growth potential.

The matrix reveals two factors that companies should consider when deciding where to invest—company competitiveness, and market attractiveness—with relative market share and growth rate as the underlying drivers of these factors.

Market Share:

Out of total purchases of a customer of a?product?or service, what?percentage?goes to a company defines its?market share.

In other words, if consumers as a whole buy 100 soaps, and 40 of which are from one company, that company holds 40%?market share.

Growth Rate:

Growth rates?refer to the?percentage?change of a specific variable within a specific time period.

For investors,?growth rates?typically represent the compounded annualized?rate?of?growth?of a company's revenues, earnings, dividends, or even macro concepts, such as gross domestic?product?(GDP) and retail sales.

Each of the four quadrants represents a specific combination of relative market share and growth:

1. Low Growth Rate & High Market Share.?Companies should milk these “Cash Cows” for cash to reinvest.
2. High Growth Rate & High Market Share.?Companies should significantly invest in these “Stars” as they have high future potential.
3. High Growth & Low Market Share.?Companies should invest in or discard these “Question Marks,” depending on their chances of becoming stars.
4. Low Market Share & Low Growth.?Companies should liquidate, divest, or reposition these “Pets/Dog”

As can be seen, product value depends entirely on whether or not a company is able to obtain a leading share of its market before growth slows.

All products will eventually become either cash cows or pets.

Pets are unnecessary; they are evidence of failure to either obtain a leadership position or to get out and cut the losses.

Overview regarding Cash Cow and Its Strategy:

• High market share but low growth.
• Takes care of your Expenses and working capital.
• Investment has been recovered.
• Here economies of scale are at work.
• Ability to fund "QUESTION MARKS & STARS".
• The company needs to encash your Cash Cows.???
• Cash Cow products in your portfolio ensure working capital is managed & Expenses are paid on time.
• Do not plan a major investment. (small investment advisable?to maintain the product)
• Maintain these products otherwise, it may create problems for working capital and regular Expenses.?
• It may turn into DOGS if not taken care of as competition intensifies.?

Overview regarding Stars and Its Strategy:

• High market share and high growth rate.
• Requires pumping of money into building resources.
• Has potential to make handsome profits and thus fuel your future products & growth.
• Builds a good brand image of the company in the market.?
• Stars will turn to Cash Cows in the future.?
• Stars are a must for any company - They will determine the future of the Company.
• Major investments should be focused here in order to fight the competition.?
• All costly resources should be focused on these products.
• It may not produce profits in starting stage but will generate a lot of sales.?

Overview regarding Question Marks and Its Strategy:

• High growth potential?
• The starting point for most businesses.
• It requires a lot of nurturing & financial support to turn them into STARS.
• “High red alert” list and should be under the continuous watch of senior?managers/ owners.
• High risk as this can turn into "Pets".
• The company Should have a few products in its portfolio.
• Brainstorm on how much money to be invested in Question Marks Products.
• Have an exit plan if they do not perform well, cannot let it become a "Pets".

Overview regarding Pets and Its Strategy:

• Low market share in the saturated market.
• Should be kept only if it is an add-on product or it may help?to win new business.
• Can use up a lot of resources without generating many profits.?
• Minimum Pet Products/Services in your portfolio
• No investment or extra resource allocation.
• Either exit or revamp the product to push it back to become a Cash cow or Star.

Perspectives on Product Portfolio:

To Be Successful - Below Articles contains Ideal Scenario of Products / Services with Growth Rate and Market Share.

Key Learnings - BCG Matrix:

• Each product has a different potential and hence strategies should be different for different products.
• All products should not be treated with same Rate of return (Profit)
• Cash Cow has to be dealt with lots of care as they supply your working capital.
• Throw out the "Pets/Dogs" as fast as possible.
• Question?marks to be given proper support so that they can become STAR in the future.
• STARS to be nurtured properly as they will pull your growth engine.?

Web Links and References:

https://cio-wiki.org/wiki/Business_Strategy

https://cio-wiki.org/wiki/Business_Objective

https://cio-wiki.org/wiki/Business_Plan

https://cio-wiki.org/wiki/Business

https://cio-wiki.org/wiki/Strategy

https://cio-wiki.org/wiki/Business_Goals

https://www.feedough.com/business-strategy-definition-levels-examples/

https://www.nurserymag.com/article/business-management-5-myths-of-business-strategy/

https://www.bcg.com/about/our-history/growth-share-matrix